Judge to HMO: Stop Fining Doctors Who Exceed Pharmacy Budgets

Judge to HMO: Stop Fining Doctors Who Exceed Pharmacy Budgets

A judge in Fort Worth last month ordered Harris Methodist Health Plan to stop fining physicians who exceed pharmacy budgets. District Judge Bonnie Sudderth ruled that Harris Methodist Health Plan's risk-sharing mechanism violates a state law that bars HMOs from paying physicians or other providers in ways that even indirectly create incentives to limit medically necessary care.

Harris Methodist pays physicians a percentage of premiums to provide care, and budgets a separate portion of premiums for prescription drugs. Physicians exceeding their pharmacy budgets must repay 35 percent of the excess, while physicians who are under budget get some of the surplus back as a bonus.

Harris Methodist faces a class-action lawsuit filed by 400 physicians who contend that its physician-payment system is illegal. The case is scheduled to go to trial in January. On the other side of the fence, 180 physicians have said through affidavits they support the Harris compensation system.

Primary care physicians who contract with Harris Methodist exceeded their pharmacy budgets by $3.2 million in 1995–96, and paid $1.1 million in fines. In 1996–97, doctors were $4.5 million over budget and paid $1.5 million. Nearly three of four Harris Methodist doctors exceeded their pharmacy budgets in 1996–97.

The pharmacy provisions of the Arlington-based health plan's contracts "have resulted, and will continue to result, in the denial of medically necessary care to Harris HMO members," Sudderth wrote in her decision.

In April, the Texas Department of Insurance recommended that Harris pay an $800,000 fine and repay physicians who were penalized for going over budget. The plan has requested a public hearing to explain its practices before Insurance Commissioner Elton Bomer decides whether to accept the recommendation and impose the fine.

The HMO contends that it knows of no case in which its compensation system led to care being denied. It plans to appeal the pharmacy decision to the Texas Court of Appeals, which could rule by July.

Blue Cross and Blue Shield of Missouri has tentatively agreed to transfer its stake in its for-profit managed care subsidiary to a new not-for-profit health care foundation. The deal settles a two-year-old legal battle with Missouri Attorney General Jay Nixon about whether Blue Cross broke state law by transferring charitable assets to the subsidiary, RightChoice Managed Care, which began operations in 1994.

Missouri law requires a charity to hold its assets in trust for the people of the state and to compensate the people for any assets it converts to for-profit use. Nixon argued that Blue Cross shifted as much as $500 million to RightChoice, a charge the plan denied. A state court ruled against Blue Cross in March. RightChoice accounts for most of Missouri Blue Cross's revenue and runs its managed care plans.

The foundation will not be run by Blue Cross or Right- Choice, although Blue Cross will retain voting control of the shares it transfers, in order to discourage hostile takeover attempts. Blue Cross owns more than 80 percent of Right- Choice stock, a stake that was worth more than $175 million in late May.

The settlement will help Blue Cross restore good relations with state regulators, according to the company's president, John O'Rourke. The two sides are negotiating a final settlement that will include the timing of the transfer of shares. Any final deal must be approved by state and federal regulators and the Blue Cross and Blue Shield Association.

The Minnesota Physician-Patient Alliance last month charged the state's three largest HMOs with spending up to 38 percent of total expenses on administration and other non-medical items. The HMOs--Blue Plus, Medica and HealthPartners — contend that the number is actually about 10 percent, and claim that they are highly efficient.

Part of the discrepancy is based on differing definitions of medical versus administrative costs. The alliance counts the costs of managing physician care as administrative. The HMOs say those are medical costs. The alliance of 1,000 physician members admits its estimates are imprecise, but blames that on vague laws regulating the way HMOs report financial information.

The alliance may have a bigger agenda. It seized on the discrepancy to claim that the relationship between the state's health department, which oversees HMOs, and health plans is so close that plans are allowed to submit confusing data — a suggestion the health department denies. The alliance wants the Department of Commerce to assume oversight of HMOs.

More than half of 31 HMOs in New York state failed to properly respond to telephone requests for information they are legally required to provide, according to Attorney General Dennis Vacco.

The state's Managed Care Consumer Bill of Rights, enacted last year, includes a requirement that plans provide subscriber contracts and member handbooks upon request. To test compliance with the law, the attorney general's office set up a survey of 31 HMOs. Each plan received 16 telephone requests for information. Eighteen of the plans failed to provide the information more than half the time, while five plans provided the information at least 14 times.

Vacco served notice on the 18 that failed the test that they could be sued. Each of the 18 plans, which include Cigna Healthcare of New York, Empire Blue Cross and Blue Shield and Prudential Health Plan of New York, scheduled a conference with the attorney general's office. The HMOs will be asked to sign an agreement on how each plans to comply with the law. The attorney general's office also seeks to put a financial penalty in the agreement.

Delaware Gov. Thomas Carper last month signed a bill that puts coverage of mental illnesses on much the same footing as physical illnesses. Health insurers must use the same terms and conditions in covering biologically based mental illnesses that they use to cover physical illnesses.

While employers in other states have tended to oppose mental-health parity laws on grounds that they increase health care costs, Delaware's Chamber of Commerce supported the measure. Oklahoma Gov. Frank Keating cited the risk of higher health costs when he vetoed a parity bill in April.

Seventeen states have parity laws. Legislators in New York, Illinois and Pennsylvania are considering similar measures.

California Gov. Pete Wilson last month proposed overhauling the state's managed care regulatory structure. The duties of the former Department of Corporations would be split between two new entities: a Department of Managed Health Care and a Department of Financial Services. Approval of the proposal is up to the state legislature.

The new managed care department would have a budget of about $16 million. In a letter to the legislature, Wilson said areas of focus for the department could include continuity of care, extended referrals to specialists, improving utilization review activities, helping consumers gain better information about the results and effectiveness of treatments, providing women with contraceptive services and improving access to specialists.

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Princeton’s Uwe Reinhardt, PhD, renowned health care economist, sits down with Managing Editor Frank Diamond to discuss the economic effects of the Affordable Care Act, wellness programs, and the state of health care in the United States in general.